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#2320 signed 5-9-97

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS




In Re:

MATTHEW T. CISNEROS,

CYNTHIA R. CISNEROS,

DEBTOR(S).





CASE NO. 95-41174-7

CHAPTER 7



MATTHEW T. CISNEROS,

CYNTHIA R. CISNEROS,

PLAINTIFF(S),

v. ADV. NO. 95-7095


MANAGEMENT ADJUSTMENT

BUREAU and TEXAS GSL CORP.,

DEFENDANT(S).





MEMORANDUM OF DECISION

This proceeding is before the Court for decision following a bench trial. The plaintiff-debtors are seeking a hardship discharge of their student loan debts. They appeared by counsel Karen K. McIlvain. The defendants both appeared by counsel Bruce A. Swenson. The Court has heard the evidence and reviewed the relevant pleadings, and is now ready to rule.

FACTS

The debtors filed for bankruptcy in 1995 and received a discharge on January 2, 1996. This case was tried on October 3, 1996. The evidence presented showed the following relevant facts.

Sometime during 1996, the debtors and their four children moved from Emporia to the Kickapoo Indian Reservation in northeast Kansas to live with Mr. Cisneros's father in a three-bedroom house there. They moved because they could no longer afford the rent they had been paying. At the time of trial, the children were ages eleven, eight, four, and under one. When they moved in with Mr. Cisneros's father, who lives on Social Security benefits, the house had no propane for heat and no water. They have bought some propane and made arrangements to pay off an outstanding bill for water in order to restore service to the house. They are paying no rent but are spending about $100 per month to repair the house. They hope this living arrangement will be temporary and are looking for a home to rent on the reservation; they expect the rent there to be about $300 to $350 per month.

Mr. Cisneros went to work as a security guard at the casino on the reservation, making a bit more per hour than at his job in Emporia, but less money overall because overtime work is not available there. His gross pay is about $1,376 per month, and about $16,640 per year. He does not know and has not asked whether this job offers any possibilities for advancement. Mr. Cisneros earned a little extra money in Emporia by refereeing sporting events, but may not be able to do that anymore because his schedule at the casino changes from month to month. Mrs. Cisneros ran a small daycare business when the debtors lived in Emporia, netting $1,528 in 1995, $1,459 in 1994, and $1,470 in 1993. Mr. Cisneros's father will not allow her to run such a business in his house. She was offered a job working nights and weekends at the casino, but decided it would not be worth doing because of child care costs and her desire to spend time with her husband and children. If either of the debtors tried to work off the reservation, they would probably have to drive about forty miles round trip to Holton or Hiawatha to do so.

Besides Mr. Cisneros's wages, the debtors receive public assistance on the reservation through what they called "Indian Commodities," apparently referring to the Food Distribution Program run by the Food and Consumer Service of the U.S. Department of Agriculture, analogous to the more familiar Food Stamp Program. See 7 C.F.R. Part 253 (1997). Mr. Cisneros buys health insurance for himself at a nominal sum through his job and three of the children receive free health care through public assistance, but Mrs. Cisneros and the oldest child have no health coverage. The food and medical benefits are provided through need-based programs and will be reduced or eliminated if the debtors' income increases. Although the defendants assert in their brief that Mrs. Cisneros receives $175 per month in child support from her former husband, the only evidence presented at trial was that she was supposed to receive $81 per month for two children but was not currently receiving it. The debtors received a $1,500 federal Earned Income Tax Credit in 1995, but their 1996 eligibility for this credit was being attached and applied to an arrearage Mr. Cisneros owed for support of an older child who does not live with the debtors. His current support obligation is $100 per month and he is also paying $50 per month for past-due support. After the arrearage is paid off, he will still have four to five more years to pay current support. Like the other public assistance, if the debtors' income increases, their eligibility for the Earned Income Credit will be reduced or eliminated.

Two of the debtors' children have "ADHD," apparently meaning "Attention Deficit and Hyperactivity Disorder" or something similar, for which they receive counseling and take Ritalin, both of which are paid for by public medical assistance. The Ritalin costs $75 per month. Mrs. Cisneros has a possible hernia or appendicitis, and during 1996, began receiving medical treatment for pain in her knees.

The debtors' monthly living expenses, which the Court finds are quite conservative, exceed their monthly income by about $150. Until July 1997, they will be making monthly payments of $161.77 for a van that had over 110,000 miles on it at the time of trial and had required repairs totaling about $1,000 over the past two years. Their budget includes no reserve that might enable them to replace this van in the future. They have included only $80 per month for their dental, vision, and medical care expenses which are not covered by insurance or public assistance, which includes all of Mrs. Cisneros's and the oldest child's care.

Mr. Cisneros obtained student loans from the defendants in 1984, 1985, and 1986. Three of the loans were for a total of $4,355, but the amount of the fourth is unclear. A copy of his application for this loan was presented at trial and it clearly shows the amount he sought to borrow was originally $850. However, that number was marked out and a new one was substituted, but the substitution is not legible. An $850 loan would have brought the total principal to $5,205. The parties stipulated that as of the time of trial, the loans totaled $4,979.07 in principal and were accruing interest at the rate of 8%. Neither side presented any evidence on this point, but unless the unspecified loan amount was $624.07, Mr. Cisneros must have made some payments over the years. The loans first became due in 1987, but Mr. Cisneros has obtained deferments totaling 791 days. The balance owed on the loans at the time of trial was $7,071.05, which included collection costs of $1,030.88 as well as accumulated interest. The defendants expect the debtors to pay $80 per month for ten years to repay these loans.

Mr. Cisneros got the student loans while attending Emporia State University. He was majoring in Physical Education and Industrial Arts with an emphasis in woodworking and shop work. The school dropped the Industrial Arts program and he took a part-time job. Finally, he was unable to continue with school. Mrs. Cisneros has no special job training.

In March 1996, the U.S. Department of Health and Human Services (HHS) issued its annual update of its poverty guidelines. See 61 F.R. 8286-88 (1996). As explained by HHS, "The poverty guidelines are a simplified version of the Federal Government's statistical poverty thresholds used by the Bureau of the Census to prepare its statistical estimates of the number of persons and families in poverty." Id. at 8287. For 1996, HHS's poverty threshold for a family of six was set at an annual income of $20,840, and for a family of seven at $23,460. Id. at 8286. HHS does not include noncash benefits such as Medicaid and food stamps in its definition of "income." Id. at 8287-88. Mr. Cisneros's wages of $16,640 per year plus the $81 per month in child support which Mrs. Cisneros is supposed to receive would give the debtors a total income of $17,612 per year, well below the poverty threshold for a family of six. Since Mr. Cisneros is paying child support for another child who does not live with them, it might be appropriate to consider the debtors to have a family of seven, placing them even further below the poverty threshold. Once Mr. Cisneros's child support arrearage is paid off, the debtors will probably receive the Earned Income Tax Credit, but it would have to increase significantly over the $1,500 they received in 1995 just to bring them up to the poverty threshold for a family of six.

DISCUSSIONS AND CONCLUSIONS

The burden of proof is on the debtors to convince the trier of fact that payment of the student loans would impose an undue hardship--with emphasis on the word "undue"--on the debtors and their dependents. They must show that they would suffer more than that degree of hardship which generally causes debtors to seek the protection of the Bankruptcy Code, that is, a present inability to pay their debts. In addition, the debtors must show that despite the relief afforded by the discharge of other debts, they will continue to suffer more than a future inconvenience or even some degree of hardship.

The defendants have set forth a number of factors which have been considered by this and other courts in undue hardship cases in the past. The Court agrees that the factors mentioned, when relevant to the debtors' circumstances, are to be considered. The bottom line, however, is whether the debtors will be able to repay the debt in the foreseeable future without (1) being forced to seek state or federal welfare aid or (2) ensuring that they will be permanent members of the growing underclass in our society. The purpose of § 523(a)(8)(B) is to prevent abuse of the Bankruptcy Code by individuals who, having financed their education, file petitions upon graduation and seek to discharge their student loans without making any good faith attempt to repay them, especially when the likelihood of their obtaining well-paying jobs has been enhanced by the education they received and they have little or no reason to file for bankruptcy other than the student loans. See H.R.Rep. No. 595, 95th Cong., 1st Sess. 133 (1977), reprinted in 1978 U.S.C.C.A.N. 5787, 6094; Report of the Commission on the Bankruptcy Laws on the United States, H.R.Doc. No. 137, 93d Cong., 1st Sess., Pt. II 140, n. 14 (1973).

The defendants urge the Court to apply the popular three-part test enunciated in In re Brunner, 46 B.R. 752 (S.D.N.Y 1985), aff'd, 831 F.2d 395 (2d Cir. 1987), to determine whether these debtors are entitled to an undue hardship discharge. The Court believes that test is overly complicated for this case. The schooling Mr. Cisneros obtained with the help of student loans has had little impact on his earning ability. He obtained no degree and ten years after his last loan, he is still not earning enough money to support all his dependents without public assistance. There is no reason to expect Mr. Cisneros to earn significantly more money in the future. His family's income is well below HHS's poverty threshold, and is not sufficient to pay their current living expenses. Assuming the debtors are able to find a place of their own to rent on the reservation, it seems unlikely they could afford to move there without additional public assistance. Since Mr. Cisneros's father lives on Social Security benefits and does not appear to have significant assets, there is no reason to expect him to leave a large monetary inheritance for his son.

Mrs. Cisneros has no training or skills that would qualify her to make more than minimum wage and there is no reason to expect her to begin working before the debtors' youngest child reaches school age so that she could be away from home part-time without incurring child care expenses. Even at that time, since the debtors would gradually lose benefits such as free medical care, free food, and the Earned Income Credit as their income increased, the Court believes the most that might be expected in the next ten years would be for the debtors to become able to pay all their expenses themselves without public assistance. And even this basic self-sufficiency may not be attainable if Mrs. Cisneros's health problems make it impossible for her to work full-time.

The Court notes the defendants asked the debtors at trial about the possibility the casino might share its profits with tribal members. Mrs. Cisneros indicated she did not know about that and Mr. Cisneros said he had heard it might be a possibility. The defendants offered no proof the casino has made any profits, no proof any such profits would actually be distributed, no proof how many people would share in the profits, and no proof how much money the debtors might be expected to receive through profit-sharing. While debtors do shoulder a heavy burden of proof when they seek to establish they would suffer an undue hardship if their student loans are not discharged, the Court does not believe they are obliged to negate vague rumors that someone might give them gifts sometime in the future which might enable them to repay the loans.

Under the circumstances, the Court believes requiring the debtors to repay these student loans would impose an undue hardship on them and their dependents. Consequently, they have established that the loans should be discharged under 11 U.S.C.A. §523(a)(8)(B).

The foregoing constitutes Findings of Fact and Conclusions of Law under Rule 7052 of the Federal Rules of Bankruptcy Procedure and Rule 52(a) of the Federal Rules of Civil Procedure. A judgment based on this ruling will be entered on a separate document as required by FRBP 9021 and FRCP 58.

Dated at Topeka, Kansas, this ____ day of May, 1997.













_________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF KANSAS




In Re:

MATTHEW T. CISNEROS,

CYNTHIA R. CISNEROS,

DEBTOR(S).





CASE NO. 95-41174-7

CHAPTER 7

MATTHEW T. CISNEROS,

CYNTHIA R. CISNEROS,

PLAINTIFF(S),

v. ADV. NO. 95-7095
MANAGEMENT ADJUSTMENT

BUREAU and TEXAS GSL CORP.,

DEFENDANT(S).





JUDGMENT ON DECISION

This proceeding was before the Court for decision following a bench trial. The plaintiff-debtors sought a hardship discharge of their student loan debts. They appeared by counsel Karen K. McIlvain. The defendants both appeared by counsel Bruce A. Swenson. The Court heard the evidence, reviewed the relevant pleadings, and issued its Memorandum of Decision resolving their dispute.

For the reasons stated in that Memorandum, judgment is hereby entered declaring the student loan debts to be dischargeable pursuant to 11 U.S.C.A. §523(a)(8)(B).

IT IS SO ORDERED.

Dated at Topeka, Kansas, this _____ day of May, 1997.







__________________________________

JAMES A. PUSATERI

CHIEF BANKRUPTCY JUDGE

 

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